Expert Insights

How To Decide If You Should Switch Financial Firms Taking your assets to a different firm can have a big impact on your long-term investments. Here’s how to consider if it’s worth it. In 1 minute Thinking about switching financial firms? Whether high fees are hurting your returns or your portfolio isn’t performing as well as you hoped, there can be plenty of good reasons to consider transferring your investments to a new firm. The right financial firm can help you reach your goals and feel more comfortable with your investments. Thankfully, no matter how much you have invested, you’re never “stuck” with a strategy that isn’t a good fit or no longer appropriate for your goals. Start with your financial goals. Are they decades away, or are you going to reach them in a couple years? For short-term goals, transferring isn’t always worth it. But with long-term investments, lower costs, increased tax efficiency, and automation could have an impact on long-term returns. Before you make a decision, ask yourself these five questions: Will transferring allow you to invest in better assets? If other investment options may give you higher returns, transferring could be a smart move. Is your portfolio automated? Automation can help you avoid common investor mistakes, help keep your portfolio balanced, and may offer tools to maximize potential opportunities to save on taxes. Could you pay less in fees? Fees can be harder to notice than taxes, but they vary widely from one firm to another, and they can take a big bite out of your portfolio every year. How easy is it to adjust your asset allocation and keep your portfolio up-to-date with your goals? Your assets should fit the goals you’re trying to achieve. Some firms (like Betterment) are designed to take the guesswork out of asset allocation by recommending the appropriate risk level for your goals and keep you on track via automatic rebalancing and auto-adjust features if certain criteria are met. Do you own mutual funds in a taxable account that pay capital gain distributions? Even when a mutual fund’s performance is down, you may have to pay additional taxes from capital gain distributions. Depending on how you answer those questions, you may want to consider transferring your investments. In 5 minutes In this guide we’ll: Discuss the main concerns with switching financial firms Explain situations where it could be smart to move Help you calculate the impact of transferring your assets When you’re driving, sometimes it just makes sense to change lanes. The same can be true with investing. Sometimes the firm you’ve invested with has high fees and other costs that hold you back from reaching your financial goals. Or their guidance has led to lower performance than you expected. In the right circumstances, transferring your investments could help you reach your goals sooner. But it’s not always the best strategy. Before you transfer, it helps to think through all the variables. Let’s see if switching financial firms could be a smart move for you. What’s your timeline to reach your goals? If you plan on reaching your financial goals in the next couple years, transferring may not be the best choice. You may end up paying taxes, and your portfolio won’t be spending much time at the new firm anyway. The longer you plan to hold your assets, the more valuable a transfer could be. Which is worse: taxes or fees? While qualified retirement accounts can generally be moved to a new provider without penalties or taxes, that’s not always the case for taxable accounts. One of the main barriers that keeps investors from transferring their taxable assets is that your new provider may invest in a portfolio that has different assets in it than your old provider. This forces you to sell some or all of these assets. If these investments are trading at a large gain—way above what you originally bought them for—then there may be significant tax implications of making the switch. Over a long enough timeline, annual fees can hurt your investments more than taxes. But it can be hard to think of it that way. Some fees usually kick in before returns ever hit your accounts—you may be losing money you’ve never even seen. But when you transfer your assets, capital gains taxes put a dent in funds you already possess. The decision boils down to paying more upfront in taxes to enable a switch versus staying put in a less optimal portfolio with higher expenses. Keep in mind: unless you gift your portfolio to someone else, you have to pay capital gains taxes someday anyway. But a difference in fees could quietly shave off value from your accounts every year. Tax deferral is worth something, but how much? Could you invest in better assets? Take a hard look at your returns in your current investments. Could they be better? For example, index funds tend to perform better over time than actively-managed funds. Those better returns could increase your account balance over time. Are your investments automated? If you or someone else has to manually maintain your portfolio, you can miss opportunities to improve performance. Betterment maintains your investments with features like rebalancing, dividend reinvestment, portfolio diversification, tax-efficient options, and more, that can be automated. Automation can also help you avoid reacting to market volatility and losing sight of your goal. Could you pay less in fees? Every financial institution has a different fee structure, and some cost much more than others. Between your annual advisory fees, trading fees, and other costs, you could be losing a lot more than you have to. How easy is it to adjust your allocation? As your goals change, you get closer to reaching them, or the market becomes more volatile, you may want to adjust your asset allocation. But how that works and how easy it is to do varies from one firm to another. At Betterment, you can easily make adjustments in the app, and we’ll even help you choose an appropriate allocation for your goals. Some firms allow you to manage your account yourself and choose from thousands of investment options, but it can be challenging or time consuming to do so. Others offer managed accounts with limited options and flexibility and they may have transaction and commission fees. If your firm makes it difficult or confusing to change your allocation, you may want to consider switching to a firm that provides a better experience. Do you own mutual funds in a taxable account that pay capital gains distributions? Mutual funds invest in individual stocks and bonds. When a mutual fund manager sells investments in the fund, they may realize capital gains, which they’ll pass to individual shareholders—investors like you. You pay taxes on these distributions. Less ideal: mutual funds can pay out capital gain distributions even if the fund’s overall performance is down for a year. If the taxes you’d owe from selling your investments are lower than the taxes you’d pay on the annual, and likely ongoing, capital gain distribution from the fund, it could be wise to sell your shares before the distribution is paid out.

How To Compare Financial Advisors Think fiduciary first—and don’t settle for surface-level answers to questions on investing philosophy, performance and personalization. In 1 minute “Financial advisor” is kind of a gray area in the professional world. Many different types of professionals share this title, despite having very different qualifications, regulations, and motives. Bottom line: you want a financial advisor who is also a fiduciary. Fiduciaries are legally bound to act in your best interest and disclose conflicts of interest upfront. But even then, it’s worth taking time to learn about their approach to financial advice. What’s their philosophy? What tools do they use to help you reach your goals? How do your goals affect their decisions? Some financial advisors are more accessible than others, too. Ask what you should expect from your interactions with them. How often can you adjust your portfolio? Will they adjust your risk as you get closer to your goal? Every financial advisor should be able to talk you through how they measure performance and what you should expect from them. But don’t settle for surface-level answers. Challenge them to tell you about performance at different levels of risk, using time-weighted returns. Ultimately, you want a financial advisor you can trust to help you reach your goals. In 5 minutes In this guide, we’ll explain: Financial advisor fees Approaches to financial advice Evaluating investment performance Tax advisors You want to make the most of your finances. And you probably have some financial goals you’d like to accomplish. A financial advisor helps with both of these things. But choose the wrong advisor, and you may find yourself going backward, with your goals getting further away. (At the very least, you won’t make as much progress.) Many people focus on historical performance as they compare potential advisors. That‘s understandable. But unless you’re looking at decades of performance data and net investor returns, you’re not getting a good look at what to expect over time. And there are plenty of other factors that affect which advisor is right for you. For starters, let’s talk fees. Take a closer look at their fees Fees can have a major impact on how much money you actually take away. And it’s not just management fees that you need to consider. There could be fees for every trade. Or additional costs for trades within a fund. Plus you’ll want to look at expense ratios—the percentage of your investment that goes toward all the fund’s expenses. These costs can vary widely between robo-advisors, traditional advisors, do-it-yourself ETFs, and mutual funds. And you have to pay them every year. Basically what it comes down to is: how does your financial advisor get paid? Put another way, how will you have to pay for their services? Compare their qualifications Unfortunately, “financial advisor” is a bit of a catch-all term. It describes professionals who may have a variety of certifications and backgrounds. Not everyone who calls themselves a financial advisor has the same regulations, expertise, motivation, or approach. In fact, some aren’t even legally required to act in your best interest! They can choose the investments that benefit them the most instead of the ones that are most likely to help you reach your goals. A fiduciary, however, is a type of financial advisor that’s legally obligated to do two things: Make decisions based on what’s in your best interest Tell you if there’s ever a conflict of interest If you’re going to work with a traditional advisor, you should ask them about their qualifications. At Betterment, we recommend engaging with a fiduciary who is a Certified Financial Planner™ (CFP®), a designation that has requirements for years of experience and continuing education – and has a high standard in quality and ethical financial planning advice. Consider their approach to financial advice and investing There’s more than one school of thought when it comes to investing and financial planning. And there are many different investment vehicles a financial advisor could use to manage your money. So two excellent fiduciaries may have very different ideas of what’s in your best interest. For example, hedge funds work well for some investors, but they’re too risky and expensive for many people. The main thing is to find an advisor whose approach aligns with your goals. How do they ensure that your risk level fits your timeline? How do they diversify your portfolio to help protect your finances? How do they respond to market volatility as prices rise and fall? You want an advisor who makes decisions based on what you’re trying to accomplish, not what’s best for some cookie-cutter investment strategy. It’s also important to learn more about what working with them looks like. How often will you interact? How frequently can you review and modify your account? What ongoing actions do you need to take? The answers to these questions will vary depending on advisor service levels, so make sure they sound realistic to you. For example, Betterment recommends you check-in on your investment allocations once per quarter. If you feel more comfortable with having an in-depth relationship, you can opt for our Premium plan, which offers unlimited calls and emails with our team of CFP® professionals. Evaluate portfolio performance Financial advisors should be transparent about performance. They should have clear explanations for discrepancies between expected and actual returns of an investment. But if you only ask generic questions about what a portfolio returns, the numbers may sound better than they actually are. Ask each financial advisor to walk you through the returns associated with portfolios at various levels of risk. Additionally, consider using time-weighted return statistics when comparing investments. Time-weighted returns aren’t affected by the amount and timing of deposits and withdrawals. The harder an advisor makes it to understand performance (and your net returns), the less likely it is that your investments will meet your expectations. What about tax advisors? A good financial advisor should also be able to structure your investments in a tax-efficient manner. As a few examples, Betterment offers strategies such as tax loss harvesting, HSAs, municipal bonds, Roth IRA conversions, and more. However, there is a distinction between a tax-savvy financial advisor and an actual licensed tax professional. Most financial advisors are not trained or licensed to actually file your taxes for you, or to give advice on all areas of the tax code. For that level of detail, you would be wise to consider working with a true tax professional in addition to your financial advisor. When searching for a tax professional, the designations to look out for include a CPA, Enrolled Agent or a licensed tax attorney. Lastly, your financial advisor and your tax professional should be transparent with one another. You want to ensure both are on the same page and aren’t catching one another by surprise. For example, if your financial advisor is tax loss harvesting for you, it’s probably wise to inform your tax professional about that. Financial expertise you can trust At Betterment, our investing experts and technology help clients build a diversified portfolio that’s right for them, then keep it optimized all year long. To top it all off, we’re a fiduciary—we always focus on your best interest. While our technology combines automation with personalization, you can also get one-on-one advice from our financial experts with an advice package or our Premium plan.

The Keys to Understanding Investment Performance Ignore the headlines, think global, and crunch these three often-overlooked numbers. Regardless of how long you’ve been in the market, at some point you’ll likely want to know how your portfolio is doing and whether you’re on track to reach your goals. Or in another scenario, you may be shopping around for investment managers and comparing their portfolios. In this guide, we’ll help you think through either situation and share our philosophy on performance along the way. How to evaluate your investment performance Investors want to make wise financial decisions, and those decisions, for better or worse, tend to be influenced by media coverage of the market. So before we share some ways to more accurately crunch performance numbers, here’s a heads up on two common fallacies that might be skewing your perspective: The Dow Fallacy Benchmarks like the Dow Jones Industrial Average are popular, but they don’t actually tell you much about the stock market. The Dow only represents 30 US stocks. And even larger benchmarks like the S&P 500 don’t give you a full picture of the US market—let alone the global market. We’ll share a more comprehensive benchmark below. The Points Fallacy It’s common to hear reporters and investors talk about how many points a benchmark has dropped. Headlines like “Dow loses 500 points” sound pretty unsettling. But points alone don’t tell you much. It’s far more valuable to look at the percentage. If the Dow is at 35,000 points, a 500 point drop is less than 2 percent. That’s not something long-term investors generally need to worry about. With those out of the way, how do you actually get a clearer picture of an investment’s performance? Unfortunately, you can’t just look at your earnings. Accurately measuring your progress means adjusting for three crucial variables: Dividends, aka the earnings companies share with stockholders Inflation Taxes Reinvested dividends can make a big impact over time, so make sure you’re taking those into account. The Federal Reserve publishes inflation data, so you can adjust your total returns based on annual inflation. And taxes vary by individual and account type. All these factors make a big difference when it comes to measuring performance. If you want to know how you’re performing relative to the market, that begs the question, “Which market?” Many of our portfolios are globally-diversified. In that case, your best bet is to benchmark against the MSCI All Country World Index. It’s a much better representation of how the entire market is doing. How Betterment simplifies performance Manually crunching the numbers in your portfolio/s can be a hassle. As a Betterment customer, we simplify the process by showing you: The sum of the parts. We pull together all the accounts inside a specific goal and show their performance as one number. Zooming in to the account level, we also summarize the value of the portfolio itself. Your total returns. These include price changes and dividends together, instead of breaking them out separately. Changes in the prices of assets in your portfolio are more volatile than total returns and don’t show the overall picture. The big picture. We show your performance over as long a period as possible to help keep you focused on the long-term and minimize short-term stress. We don’t encourage frequent monitoring of performance, but if you do want to review performance, you have the tools necessary to do so. Two of those tools are time-weighted return (TWR) and individual rate of return (IRR). Time-Weighted Return When you invest, you often do it a little bit at a time. A contribution here, a contribution there – or even better, contributions made on a consistent schedule via auto-deposit. The time-weighted return imagines that all the contributions you’ve made to date happened all at once on Day 1. This way of crunching returns takes deposits and withdrawals out of the equation when evaluating your portfolio performance. Why would you want to do this? Because cash coming in and out of your portfolio at different times can distort and complicate your returns due to the nature of the constantly-fluctuating stock market. Also, if you were comparing returns across two different accounts with two different cash flow patterns, you couldn’t be sure if the difference was due to the investments or due to the timing of the cash flows. The time-weighted return can refer to a price-only return, or a total return. Price return reflects only the change in price of the asset, while total return reflects both price and reinvested income. By default, Betterment displays total return for a more comprehensive view of performance. Individual Rate of Return The individual rate of return, on the other hand, is affected by each and every instance of cash flow that goes in and out of your portfolio. Cash flows at Betterment can include deposits, withdrawals, dividends, and fees. IRR does a better job of answering the question, “What are the average returns on the dollars I personally deposited into Betterment?” as opposed to “How well does Betterment design and manage the portfolios I have with them?” Look beyond performance when sizing up investment managers Make no mistake, the construction and performance of a portfolio is important, but it’s not the only thing you should consider when sizing up the services of an investment manager. We recommend a more comprehensive set of criteria: Monetary costs such as commissions, trade fees, and assets under management (AUM) fees. These can create a drag on your returns. Non-money costs like the amount of time and effort required of you. Does a service come with a high time or stress cost for you to get the most out of it? Investing philosophy and whether it aligns with your values. Some funds, for example, try to deviate from an index and may cost more as a result. Tax efficiencies such as tax loss harvesting and asset location. Your stated returns likely won’t take into account any potential value these tools may have added. When choosing an investment manager, the key isn’t to focus solely on investment performance; it’s to focus on service, fit, and investor returns.

3 Low-Risk Ways To Earn Interest Earning interest usually means taking on risk. But with bonds and cash accounts—and investing’s potential for compound interest—you can minimize that risk. In 1 minute When you don’t have much time to reach your goal, you can’t afford to make a risky investment. Thankfully, you can earn interest without putting everything on the line. Here’s how. Bonds Bonds are one of the most common types of financial assets. They represent loans, which a business or the government uses to pay for projects and other costs. Just as you pay interest when you take out a loan, bonds pay investors interest. You’ll typically see lower returns than you might with stocks, but the risk is generally lower, too. Cash accounts Cash accounts are similar to traditional savings accounts, only they are typically designed to earn more interest (and may come with more restrictions). These are great when you need your money to be readily available to you, but still want to earn some interest. And to top it off, many cash accounts are offered at or through banks so your deposits are FDIC insured, so there’s minimal risk. Compound interest In addition to bonds and cash accounts, there’s one more way to earn interest—investing and earning compound interest, which is the interest generated from previous rounds of interest itself. That’s right. As you accrue interest on your underlying investing funds, that interest makes money and that money in turn makes more money. The longer and more frequently your interest compounds, the more you can earn. In 5 minutes Want to earn interest? You usually have to take some risk which means you could lose some money. Financial assets can gain or lose value over time. And investments that have the potential to earn greater interest often come with the risk of greater losses. But there are ways to lower your risk. If you have a short-term financial goal or you’re just cautious, you can still earn interest. It might not be much, but it will be more than you’d get keeping cash under your mattress (don’t do that). In this guide, we’ll look at: Bonds Cash accounts Compound interest Bonds Bonds are basically loans. Companies and governments use loans to fund their operations or special projects. A bond lets investors help fund (and reap the financial benefits of) these loans. They’re known as a “fixed income” asset because your investment earns interest based on a schedule and matures on a specific date. Bonds are generally lower-risk investments than stocks. The main risks associated with bonds are that interest rates can change, and companies can go bankrupt. Still, these are typically fairly stable investments (depending on the type of bond and credit quality of the issuer), making them a good option for short-term goals. With municipal bonds, you can earn tax-free interest. These bonds fund government projects, and in return for the favor, the government doesn’t tax them. Invest in your own state, and you could avoid federal and state taxes. Even when your goal is years away, including bonds in your investment portfolio can be a smart way to lower your risk and diversify your investments. Cash accounts Cash accounts seek to earn more interest than a standard savings or checking account, and they’re federally insured by the FDIC or NCUA. (This is usually the case but depends on the institution housing your deposits (i.e., banks or credit unions). Check to make sure your account is insured before depositing any money.) In most cases, there’s little risk of losing your principal. Your interest is based on the annual percentage yield (APY) promised by the bank or financial institution you open the account with. One of the great perks of a cash account is that it’s highly liquid—so you can use your money when you want. It won’t earn as much interest as an investment, but it won’t be as tied up when you need it. For short-term financial goals, a cash account works just fine. The key is to choose an account that meets your needs. Pay attention to things like minimum deposits, transaction limits, fees, and compound frequency (that’s often how it accrues interest). These differences affect how fast your savings will actually grow and how freely you can use it. Compound interest Compound interest refers to two things: The interest your investments or savings earn The interest your interest earns It’s your money making more money. If you want to build wealth for the long-term, investing and allowing your interest to compound is one of the smartest moves you can make. The sooner you invest and put your money to work, the more opportunity your money has to earn compound interest. Compound interest starts small, but can grow exponentially. Your investment has the potential to grow faster because your interest starts earning interest, too. If you start young, you have a huge advantage: time is on your side! While compound interest accrues with minimal risk, investing in the market involves varying levels of risk.

How to Build an Emergency Fund An emergency fund keeps you afloat when your regular income can’t. Learn how to start one and grow it. In 10 seconds An emergency fund keeps you afloat when your regular income can’t. Try saving at least three months’ worth of expenses, so your finances can handle a sudden job loss or medical emergency. In 1 minute An emergency fund helps protect you from the most common financial crises. It helps cover unexpected expenses that don’t fit into your regular budget, and buys time to find a new job or manage a transition. For most people, the goal is to have enough funds set aside to pay for at least three months of living expenses, including food, housing, and other essential costs. But exactly how much you need depends on your situation. If you have more dependents or greater risks, you may need more than that to feel comfortable. Ideally, you should automate deposits into your emergency fund to make sure it grows each month until it reaches an appropriate size. You may also want to put this money into a cash account or low-risk investment account to help it grow faster, as long as you are ok with taking on this risk. Betterment makes both of these options easy, and with recurring deposits, you can make steady progress toward your goal. In 5 minutes In this guide we’ll cover: Why you should build an emergency fund How much you should save How to grow your emergency fund You can’t anticipate every financial disaster. But with an emergency fund, you can reduce their impact on your life. It’s a special account you don’t touch until you absolutely need to. If you’re like most people, this is one of your first and most important financial goals. Without an emergency fund, you could find yourself taking on high-interest debt to avoid losing your home. Or unable to meet basic needs, you may have to make hard choices about which necessities to live without.  So, how much should you save? What should you do with the money you set aside? And what counts as “an emergency”? Your emergency fund is personal. It needs to fit your life, your needs, and your risks. Some may only need a few thousand dollars. Others may need tens of thousands. It all depends on your regular expenses and how prepared you want to be. How large should your emergency fund be? For most people, the goal is to have enough to cover at least three months of expenses. That’s rent or mortgage, utilities, food, and anything else you pay every month. If you unexpectedly lost your job or had a medical crisis, your emergency fund should be enough to help you through most transitions.  Some folks should save more. If you’re a single parent or the only person with income in your household, a sudden loss of income would have a greater impact. If you work in an industry with high turnover, or you have a serious medical condition, you’re more likely to need these funds, so you may want to save more, such as six months of your monthly expenses. It may help to think of your emergency fund as time. This isn’t just a target dollar amount. It’s months of time. How long would you like to keep the bills paid without a job? How much would it take to do that? That’s the amount you should save. There’s no magic number that’s right for every person. And since it’s based on your current cost of living, the amount you’ll want to save will change with your expenses. Live more frugally, and you may be more comfortable with a smaller emergency fund. Get a bigger house or apartment, add a family member, or spend more on basic needs, and you’ll need a bigger emergency fund. How to build an emergency fund The hardest part of building an emergency fund is figuring out how saving fits into your life. It helps to work backward from your goal. Once you know how much you need to save, decide when you want to save it by. The sooner the better, but choose a timeline that makes sense for you. Then break your goal into chunks—how much do you need to save each month or each paycheck to get there on time? The last part is easy. Make your savings automatic with recurring deposits. You make the commitment once, then see steady progress toward your goal. You don’t have to think about it anymore. Set up a Safety Net goal with Betterment, and we’ll take care of this for you. Set how much you want to save and when you want to save it by, then decide how much you can put toward that goal each month. Create a recurring deposit, and you’ll start saving automatically. This video sums it all up. Where should you put your emergency fund? A lot of people put their emergency fund in a savings account at a bank. It keeps their money liquid, and it’s federally insured by the FDIC. So there’s little risk of losing what you’ve saved. Obviously, you want your emergency fund to be there when you need it, so it’s understandable why so many people are drawn to savings accounts. But it may not be the best way to grow your fund, either. Most savings accounts generate so little interest that they’re basically cash. It’s a step above putting money under your mattress. And like cash, savings accounts will usually lose value over time due to inflation. Thankfully, you have options. You can generate more interest without taking on much more risk. Here are some alternative places to put your emergency fund. High Yield Cash Account Like a regular savings account, most cash accounts are federally insured. But unlike a traditional savings account, these can generate meaningful interest. A high yield account takes your money further, and it’s still highly liquid. Certificate of Deposit (CD) A certificate of deposit, or CD, is basically a short-term investment. It lasts for a fixed duration, such as 12 months or 5 years. At the end of this period, the CD “matures,” and you typically earn more interest than you would with a high yield cash account. CDs are federally insured and still low-risk, but until your CD matures, it’s not liquid unless you pay a penalty to get out of the CD early. This makes it a little riskier for an emergency fund, since you never know when you’ll find yourself in a crisis. Low-Risk Investment Account Investment accounts can offer greater growth potential in exchange for taking on more risk. While stocks are considered volatile because they frequently change in value, bonds are generally more stable. An investment portfolio consisting of all bonds can still outpace a CD, a high yield account, and inflation, while putting your emergency fund at significantly less risk when compared to a portfolio consisting entirely of stocks. If you feel investing is the right move for you, Betterment recommends giving yourself a bigger buffer, adding 30% to your target amount. That way your money can grow faster, but it’s also protected against potential losses.

Retail Investors and ESG: Assessing the Landscape Individuals are increasingly examining every aspect of their civic and financial lives for opportunities to play a role in shaping the world of tomorrow.  As climate change and its implications for the future of the economy and society continues its rise as the dominant issue of our time, individuals are increasingly examining every aspect of their civic and financial lives for opportunities to play a role in shaping the world of tomorrow.  Betterment surveyed 1,000 U.S. investors to examine their level of understanding and interest in environmental, social and corporate governance (ESG) investments, what might make them interested in learning more or investing, as well as the role employers and advisors play in educating individuals on ESG. 

The Role Of Life Insurance In A Financial Plan Life insurance helps loved ones cover expenses and progress toward financial goals after you’re gone. In 10 seconds In the event of your death, life insurance helps loved ones cover expenses and progress toward financial goals. In 1 minute If you have dependents, life insurance should be strongly considered in many cases. You don't want financial ruin to add to your loved ones' grief in a time of tragedy. A term life insurance policy gives you temporary coverage for a low monthly or annual premium. You decide how long you want coverage, then lock in your rates. When you pay off your debts and reach other financial goals, you can then reassess your life insurance needs. Alternatively, permanent life insurance policies ensure your loved ones will receive a payout, regardless of at what age you pass away. One of the biggest challenges is deciding how much coverage you need. One thing to consider is how much it would take to pay off any debts you and your dependents owe and how much they might need for future expenses, like college. Replacing the loss of income from a breadwinner is another consideration. It may seem complicated, but applying for life insurance is pretty straightforward. Consider the steps outlined below, and you can help protect your loved ones from the financial pain of an untimely death. In 5 minutes In this guide, we’ll cover: Life insurance basics How to decide if you need life insurance How to apply for life insurance When you’re making a financial plan, life insurance probably isn’t the first thing that comes to mind. But if you pass away, life insurance helps take care of your loved ones when you can’t. It helps your beneficiaries stay on track to pay off your mortgage, pursue secondary education, retire on time, and reach the other financial goals you’ve made together. It protects them from the sudden loss of income they could experience. Life insurance won’t help you reach your goals, but it ensures that your loved ones still can when you’re gone. But not all life insurance policies are the same. And if you’re considering this financial move, it’s worth understanding the basics. Life insurance basics Whatever policy you buy, life insurance has five main components: Policyholder: The person or entity who owns the life insurance policy. Usually, this is the person whose life is insured, but it’s also possible to take out a policy on someone else. The policyholder is responsible for paying the monthly or annual insurance premiums. Insured: Also known as the life assured, this is the person whose life the policy covers. The cost of life insurance heavily depends on who it covers. Beneficiary: The person, people or institution(s) that receive money if the insured dies. There can be more than one beneficiary named on the policy. Premium: This is what you pay monthly or annually to keep a policy active (or “in-force”). Stop paying premiums, and you could lose coverage. Death benefit: This is what the insurance company pays the beneficiaries if the insured person passes away. As soon as the policy is in force, the beneficiaries are usually eligible for the death benefit. In some circumstances, insurance companies aren’t obligated to pay the death benefit. This includes when: The insured outlives the policy term The policy lapses or gets canceled The death occurs within two years of the policy being in-force and the insurance company finds evidence of fraud on the application Term life insurance vs. permanent life insurance Term life policies last for a set period of time. When the term is up, the policy expires. This is usually the most affordable type of life insurance. And since it’s not permanent, you can let it expire once you reach your financial goals and have other means of providing for your loved ones. You’re not stuck paying for protection you no longer need. In fact, the premiums are so low that you can even abandon your policy later without losing much money. Permanent life insurance policies don’t have an expiration date. They last for as long as the policyholder pays the premiums. Since they’re permanent, these policies also have a cash-value component that can be borrowed against. These policies have higher premiums than term policies. Permanent life insurance policies include whole, variable, universal and variable universal life. So, should you sign up for life insurance? If you have financial dependents, and you don’t have enough money set aside to provide for them in the event of your passing, then life insurance should be considered. Here are some cases where buying life insurance might not be beneficial: You have neither a spouse nor dependents You don’t have any debt You can self-insure (you have enough saved to cover debts and expenses) Unless that describes you, getting life insurance should probably be on your To-Do list. How much coverage do you need, though? That depends. If you’re married, you want to leave a financial cushion for your spouse. You also want to make sure that they can continue to pay off the loans you co-signed. For example, your spouse could lose your house if they are unable to keep up with the mortgage payments. Consider choosing a policy that will cover any debts your spouse may owe and the loss of your income. A common rule of thumb for an amount is 10x the insured's income. If you have kids, consider getting a policy big enough to cover all childcare costs, including everything you pay now and what you may pay in the future, such as college tuition. You may wish to leave enough behind for your spouse to cover your kids’ education expenses. Your death benefit should usually cover the entire amount of all these expenses, minus any assets you already have that your family can use to make up some of the financial shortfall. This could be as little as $250,000 or as much as several million dollars. How to apply for life insurance Applying for life insurance usually takes four to eight weeks, but you can often complete the process in just seven steps: Compare quotes from multiple companies Choose a policy Fill out an application Take a medical exam Complete a phone interview Wait for approval Sign your policy And just like that, you have life insurance—and your dependents have a little more peace of mind. Don’t let death derail your financial plan Life insurance is about preparing for the unexpected. As you set financial goals and plan for the future, it’s important to consider what your family’s finances would look like without you. This is your fail-safe. In the worst case scenario, life insurance prevents financial loss from adding to your loved ones’ grief. Please note that Betterment is not a licensed estate planning professional.

What Is A Fiduciary, And Do I Need One for My Investments? When it comes to getting help managing your financial life, transparency is the name of the game. In 10 seconds A fiduciary is a person or institution that is legally required to act in your best interest when managing your finances. Working with a fiduciary helps ensure that the financial advice you receive is transparent. In 1 minute A fiduciary is legally obligated to put your financial interests ahead of their own. They have a duty to eliminate or disclose potential conflicts of interest whenever possible. Betterment holds itself to this high standard, which in turn gives our customers peace of mind. Non-fiduciary advisors, on the other hand, can legally prioritize investments that pad their own pockets more than yours. A common conflict of interest involves commissions. Many investment professionals primarily rely on commissions to make money. They can be motivated to have you invest in assets that give them the biggest commissions, rather than what will provide the most expected benefit to you. If you want to try and ensure the financial advice you receive is transparent, consider working with a fiduciary. In 5 minutes In this guide we’ll: Define what a fiduciary is Explain how they differ from other financial advisors Consider when it can be important to work with a fiduciary Learn how to be a proactive investment shopper What is a fiduciary? When you seek out financial advice, it’s reasonable to assume your advisor would put your best interests ahead of their own. But the truth is, if the investment advisor isn’t a fiduciary, they aren’t actually required to do so. A fiduciary is a professional or institution that has the power to act on behalf of another party, and is required to do what is in the best interest of the other party to preserve good faith and trust. What is the fiduciary duty? An investment advisor with a fiduciary duty to its clients is obligated to follow both a duty of care and a duty of loyalty to their clients. The duty of care requires a fiduciary to act in the client’s best interest. Under the duty of loyalty, the fiduciary must also attempt to eliminate or disclose all potential conflicts of interest. Not all advisors are held to the same standards when providing advice, so it’s important to know who is required to act as a fiduciary. Are all financial advisors fiduciaries? Short answer: No. Financial advisors not acting as fiduciaries operate under a looser guideline called the suitability standard. Advisors who operate under a suitability standard have to choose investments that are appropriate based on the client’s circumstances, but they neither have to put the clients’ best interests first nor disclose or avoid conflicts of interest so long as the transaction is considered suitable. What are examples of conflicts of interest? When in doubt, just follow the money. How do your financial advisors get paid? Are they incentivised to take actions that might not be in your best interest. Commissions are one of the most common conflicts of interest. At large brokerages, it’s still not uncommon for investment professionals to primarily rely on commissions to make money. With commission-based pay, your advisor might receive a cut each time you trade, plus a percentage each time they steer your money into certain investment companies’ financial products. They can be motivated to recommend you invest in funds that pay them high commissions (and cost you a higher fee), even if there’s a comparable and cheaper fund that benefits your financial strategy as a client. When is it important to work with a fiduciary? When looking for an advisor to trade on your behalf and make investment decisions for you, you should strongly consider choosing a fiduciary advisor. This should help ensure that you receive suitable recommendations that will also be in your best interest. If you want to entrust an advisor with your financials and give them discretion, you may want to make sure they’re legally required to put your interests ahead of their own. On the other hand, if you’re simply seeking help trading securities in your portfolio, or you don’t want to give an advisor discretion over your accounts, you may not need a fiduciary advisor. How to be a proactive investment shopper Hiring a fiduciary advisor to manage your portfolio is one of the best ways to try and ensure you are receiving unbiased advice. We highly recommend verifying that your professional is getting paid to meet your needs, not the needs of a broker, fund, or external portfolio strategy. Ask the tough questions: “I’d love to learn how you’re paid in this arrangement. How do you make money?” “How do you protect your clients from your own biases? Can you tell me about potential conflicts of interest in this arrangement?” “What’s the philosophy behind the advice you give? What are the aspects of investment management that you focus on most?” “What would you say is your point of differentiation from other advisors?" Some of these questions may be answered in a Form CRS, which is a relationship summary that advisors and brokers are required to give their clients or customers as of summer 2020. You should also know the costs of your current investments and compare them with other options in the marketplace as time goes on. If alternatives seem more attractive, ask your advisor why they haven’t suggested making a switch. And if the explanation you get seems inadequate, consider whether you should continue working with your investment professional. Why is Betterment a fiduciary? A common point of confusion is whether or not robo-advisors can be fiduciaries. So let’s clear up any ambiguities: Yes, they certainly can be. Betterment is a Registered Investment Advisor (RIA) with the SEC and is held to the fiduciary standard as required under the Investment Advisers Act. Acting as a fiduciary aligns with Betterment’s mission because we are committed to helping you build a better life, where you can save more for the future and can make the most of your money through our cash management products and our investing and retirement products. I, as well as the rest of Betterment’s dedicated team of human advisors, are also Certified Financial Planners® (CFP®, for short). We’re held to the fiduciary standard, too. This way, you can be sure that the financial advice you receive from Betterment, whether online or from our team of human advisors, is in your best interest. Like what you hear? You can get started with an investing portfolio today.

How To Manage Your Income In Retirement An income strategy during retirement can help make your portfolio last longer, while also easing potential tax burdens. In 10 seconds How you manage your retirement income can have a significant impact on how long your savings last. Adjust your asset allocation over time and withdraw from your accounts in the right order to help stretch your money further. In 1 minute Retirement planning doesn’t end when you retire. To have the retirement you’ve been dreaming of, you need to ensure your savings will last. And how much you withdraw each month isn’t all that matters. If you’re not careful, market downswings can dramatically lower the value of your portfolio—and once you start making withdrawals, it’s much harder to rebound with the market. It’s important to prepare for the risk. As retirement draws nearer, you should consider adjusting your asset allocation to take on less risk. During retirement, you may gradually shift to an allocation of just 30% stocks, with the remainder going toward less volatile assets, like bonds. As you make withdrawals and earn dividends, you’ll likely want to rebalance your portfolio, either manually or through automated services like those at Betterment, based on the market and your target allocation. Even though you're retired, a financial safety net is still essential. You should strongly consider maintaining enough funds for three to six months of expenses in a low-risk, accessible account, so if things take a turn for the worse, you have something to fall back on. Supplemental income helps, too. Social Security, rental income, a part-time job, or pension withdrawals can help you maintain your lifestyle in retirement and leave more of your nest egg in growth mode. It’s also a good idea to withdraw from your accounts in the right order. Generally you should consider starting with taxable accounts first, then tax-deferred accounts, and save the tax-free accounts for last. One exception is when you have Required Minimum Distributions (RMDs). In that case, you can withdraw your RMDs first, then take anything else you need from your taxable accounts, then tax-deferred, and finally tax-free accounts. Another exception is when your tax bracket is higher/lower than usual. Sound complicated? Betterment can help you decide exactly how much to withdraw based on your timeline and portfolio. In 5 minutes In this guide we’ll cover: Why changes in the market affect you differently in retirement How to keep bad timing from ruining your retirement How to decide which accounts to withdraw from first Part of retirement planning involves thinking about your retirement budget. But whether you’re already retired or you’re simply thinking ahead, it’s also important to think about how you’ll manage your income in retirement. Retirement is a huge milestone. And reaching it changes how you have to think about taxes, your investments, and your income. For starters, changes in the market can seriously affect how long your money lasts. Why changes in the market affect you differently in retirement Stock markets can swing up or down at any time. They’re volatile. When you’re saving for a distant retirement, you usually don’t have to worry as much about temporary dips. But during retirement, market volatility can have a dramatic effect on your savings. An investment account is a collection of individual assets. When you make a withdrawal from your retirement account, you’re selling off assets to equal the amount you want to withdraw. So say the market is going through a temporary dip. Since you’re retired, you have to continue making withdrawals in order to maintain your income. During the dip, your investment assets may have less value, so you have to sell more of them to equal the same amount of money. When the market goes back up, you have fewer assets that benefit from the rebound. The opposite is true, too. When the market is up, you don’t have to sell as many of your assets to maintain your income. There will always be good years and bad years in the market. How your withdrawals line up with the market’s volatility is called the “sequence of returns.” Unfortunately, you can’t control it. In many ways, it’s the luck of the withdrawal. Still, there are ways to decrease the potential impact of a bad sequence of returns. How to keep bad timing from ruining your retirement The last thing you want is to retire and then lose your savings to market volatility. So you’ll want to take some steps to try and protect your retirement from a bad sequence of returns. Adjust your level of risk As you near or enter retirement, it’s likely time to start cranking down your stock-to-bond allocation. Invest too heavily in stocks, and your retirement savings could tank right when you need them. Betterment generally recommends turning down your ratio to about 56% stocks in early retirement, then gradually decreasing to about 30% toward the end of retirement. Rebalance your portfolio During retirement, the two most common cash flows in/out of your investment accounts will likely be dividends you earn and withdrawals you make. If you’re strategic, you can use these cash flows as opportunities to rebalance your portfolio. For example, if stocks are down at the moment, you likely want to withdraw from your bonds instead. This can help prevent you from selling stocks at a loss. Alternatively, if stocks are rallying, you may want to reinvest your dividends into bonds (instead of cashing them out) in order to bring your portfolio back into balance with your preferred ratio of stocks to bonds. Keep a safety net Even in retirement, it’s important to have an emergency fund. If you keep a separate, low-risk account in your portfolio with enough money to cover three to six months of expenses, you can likely cushion—or ride out altogether—the blow of a bad sequence of returns. Supplement your income Hopefully, you’ll have enough retirement savings to produce a steady income from withdrawals. But it’s nice to have other income sources, too, to minimize your reliance on investment withdrawals in the first place. Social Security might be enough—although a pandemic or other disaster can deplete these funds faster than expected. Maybe you have a pension you can withdraw from, too. Or a part-time job. Or rental properties. Along with the other precautions above, these additional income sources can help counter bad returns early in retirement. While you can’t control your sequence of returns, you can control the order you withdraw from your accounts. And that’s important, too. How to decide which accounts to withdraw from first In retirement, taxes are usually one of your biggest expenses. They’re right up there with healthcare costs. When it comes to your retirement savings, there are three “tax pools” your accounts can fall under: Taxable accounts: individual accounts, joint accounts, and trusts Tax-deferred accounts: individual retirement accounts (IRAs), 401(k)s, 403(b)s, and Thrift Savings Plans Tax-free accounts: Roth IRAs, Roth 401(k)s Each of these account types (taxable, tax-deferred, and tax-free) are taxed differently—and that’s important to understand when you start making withdrawals. Here’s how taxes work with each of these account types. When you have funds in all three tax pools, this is known as “tax diversification.” This strategy can create some unique opportunities for managing your retirement income. Withdrawing from your taxable accounts first usually gives your portfolio more time to grow. This is because you only pay taxes on the capital gains, so more money stays in your account. With a tax-deferred account like a 401(k), you pay taxes on the full amount you withdraw, so with each withdrawal, taxes take more away from your portfolio’s future earning potential. Since you don’t have to pay taxes on withdrawals from your tax-free accounts, it’s typically best to save these for last. You want as much tax-free money as possible, right? So the ideal withdrawal order is generally: Taxable accounts Tax-deferred accounts Tax-free accounts But in abnormal years, where you find your tax bracket either higher or lower than usual, you likely will want to deviate from this strategy, and attempt to “smooth” out your tax bracket. This is more advanced, but can help you take advantage of lower tax years and minimize the impact of higher tax years. There’s just one other thing to consider: Required Minimum Distributions (RMDs). When you reach a certain age, you’re required to take a certain amount from your tax-deferred accounts each month—or else you’ll lose 50% of the required amount. If that applies to you, you’ll want to take out your RMD first, then follow the order above. So it goes: Required Minimum Distributions, taxable accounts, tax-deferred accounts, tax-free accounts. Withdraw your retirement income from your accounts in that order, and you’ll likely help your savings last as long as possible. Take the guesswork out of your retirement income Sometimes it’s hard to decide how much to withdraw from your retirement savings. And as you enjoy years of retirement, when and how should you adjust your asset allocation? Betterment helps you with both of these decisions. As a Betterment investor, when you designate yourself a retiree, you can set up a goal called “Retirement Income.” Our algorithm will automatically calculate a safe withdrawal amount and recommend an asset allocation based on where you’re at and what you have to work with. You can set up automatic withdrawals from your Betterment account to your checking account, helping you maintain a personalized payment schedule. Ready to get started? Set up a Retirement Income goal today. Or, see the rest of our retirement advice. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

What You Should Know About Financial Markets Let time work in your favor. Let the market worry about itself. Financial markets are unpredictable. No matter how much research you do and how closely you follow the news, trying to “time the market” usually means withdrawing too early and investing too late. Most investors see better performance by focusing on the long game. With a diversified portfolio and a patient and disciplined approach, the more time you give your investments in the market, the better your portfolio performs. When you try to time the market, you also risk short-term capital gains taxes. Even if you make a profit with constant buying and selling, these taxes quickly eat into your gains. Hold your assets for over a year, and you’ll avoid these short-term taxes. If you do need to make adjustments, try to keep them to a minimum. The best way to adjust your asset allocation is to look at how much time you have to reach your goal. The closer it gets, the less risk you’ll want to take. Got more time? There’s more to unpack about financial markets. In 5 minutes In this guide, we’ll explain: Why a long-term strategy is often the best approach The problems with trying to time the market How to accurately evaluate portfolio performance How to make adjustments when you need to Why a long-term strategy is often the best approach Watch the market closely, and you’ll see it constantly fluctuate. The markets can be sky high one day, then come crashing down the next. Zoom in close enough on any ten-year period, and you’ll see countless short-term gains and losses that can be large in magnitude. Zoom out far enough, and you’ll see a gradual upward trend. It’s easy to get sucked into market speculation. Those short-term wins feel good, and look highly appealing. But you’re not trying to win the lottery here—you’re investing. You’re trying to reach financial goals. At Betterment, we believe the smartest way to do that is by diversifying your portfolio, making regular deposits, and holding your assets for longer. Accurately predicting where the market is going in the short-term is extremely difficult, but investing regularly over the long-term is an activity you can control that can lead to far more reliable performance over time. The power of compounding is real. By regularly investing in a well-diversified portfolio, you’re probably not going to suddenly win big. But you’re unlikely to lose it all, either. And by the time you’re ready to start withdrawing funds, you’ll have a lot more to work with. The basics of diversification Diversification is all about reducing risk. Every financial asset, industry, and market is influenced by different factors that change its performance. Invest too heavily in one area, and your portfolio becomes more vulnerable to its specific risks. Put all your money in an oil company, and a single oil spill, regulation, lawsuit, or change in demand could devastate your portfolio. There’s no failsafe. The less you lean on any one asset, economic sector, or geographical region, the more stable your portfolio will likely be. Diversification sets your portfolio up for long-term success with steadier, more stable performance. The problems with trying to time the market There are two big reasons not to try and time the market: It’s extremely difficult to consistently beat a well-diversified portfolio Taxes Many investors miss more in gains than they avoid in losses by trying to time a dip. Even the best active investors frequently make “the wrong call.” They withdraw too early or go all-in too late. There are too many factors outside of your control. Too much information you don’t have. To beat a well-diversified portfolio, you have to buy and sell at the perfect time. Again. And again. And again. No matter how much market research you do, you’re simply very unlikely to win that battle in the long run. Especially when you consider short-term capital gains taxes. Any time you sell an asset you’ve held for less than a year and make a profit, you have to pay short-term capital gains taxes. Just like that, you might have to shave up to 37% off of your profits. With a passive approach that focuses on the long game, you hold onto assets for much longer, so you’re far less likely to have short-term capital gains (and the taxes that come with them). You don’t just have to consistently beat a well-diversified, buy and hold portfolio. In order to outperform it, you have to blow it out of the water. And that’s why you may want to rethink the way you evaluate portfolio performance. How to evaluate portfolio performance Want to know how well your portfolio is doing? You need to use the right benchmarks and consider after-tax adjustments. US investors often compare their portfolio performance to the S&P 500 or the Dow Jones Industrial Average. But that’s helpful if you’re only invested in the US stock market. If you’re holding a well-diversified portfolio holding stocks and bonds across geographical regions, the Vanguard LifeStrategy Funds or iShares Core Allocation ETFs may be a better comparison. Just make sure you compare apples to apples. If you have a portfolio that’s 80% stocks, don’t compare it to a portfolio with 100% stocks. The other key to evaluating your performance is tax adjustments. How much actually goes in your pocket? If you’re going to lose 30% or more of your profits to short-term capital gains taxes, that’s a large drain on your overall return that may impact how soon you can achieve your financial goals. How to adjust your investments during highs and lows At Betterment, we believe investors get better results when they don’t react to market changes. On a long enough timeline, market highs and lows won’t matter as much. But sometimes, you really do need to make adjustments. The best way to change your portfolio? Start small. Huge, sweeping changes are much more likely to hurt your performance. If stock investments feel too risky, you can even start putting your deposits into US Short-Term Treasuries instead, which are extremely low risk, highly liquid, and mature in about six months. This is called a “dry powder” fund. Make sure your adjustments fit your goal. If your goal is still years or decades away, your investments should probably be weighted more heavily toward diversified stocks. As you get closer to the end date, you can shift to bonds and other low-risk assets. Since it’s extremely hard to time the market, we believe it’s best to ride out the market highs and lows. We also make it easy to adjust your portfolio to fit your level of risk tolerance. It’s like turning a dial up or down, shifting your investments more toward stocks or bonds. You’re in control. And if “don’t worry” doesn’t put you at ease, you can make sure your risk reflects your comfort level.

Should You Invest in Crypto? Q&A with Makara Co-founder Jesse Proudman We asked Makara co-founder and CEO, Jesse Proudman, a few questions about why he believes in crypto and how it compares to traditional markets. Crypto can democratize finance by removing gatekeepers and intermediaries present in the existing financial system. Crypto is intended to have no central approver, no hidden fees, and be completely transparent. Given the proliferation of the internet and the digitization of everyday life, cryptocurrency's transformative potential is clear. We see crypto as an investment, of course, but also as a way to redefine the future of money and what can be done with it. Our co-founder, Jesse Proudman, has been involved in digital assets since 2017. First it was as an investor, then systematically trading cryptocurrency as the founder of the quantitative hedge fund Strix Leviathan, and finally as a co-founder behind the launch of Makara. We asked him a few questions about why he believes in crypto, how it compares to traditional markets, and why, if you’re on the fence, he may not try to convince you to join him. What is it that you like so much about crypto? This is seemingly the first opportunity that all investors have had to participate in an evolving asset class from its inception. If you think about angel investing, startups, or real estate deals, participation is often reserved for a select few—these are selective investment opportunities and you usually have to be an insider to be a part of them. But with crypto, the same technology that makes it so innovative also is designed to make it open to all. With global liquidity, likely anyone on earth can invest across a breadth of offerings at any time and be a part of this innovative, evolving new technology. How does it compare to traditional markets? When you’re buying stocks, you’re buying equity in a company, equity that is reflective of ownership with specific and defined rights. In this landscape, you’re not buying equity in a company. You are instead buying participation in a network. You’re potentially buying the direct ability to influence that network via governance tokens. Investing in this asset class is akin to being part of a community. It’s a fundamentally different type of investment with its own risks. At the end of the day, these are behavioral markets, which makes it hard to say, “Bitcoin at $60,000 is expensive or reasonable.” That almost seems like it would make people more nervous. When you buy into a company, you can judge based on performance indicators. It’s true. In the stock market, there are valuation models that investors generally agree upon. There are understood ways, like price per earnings, to value a specific stock. While there are valuation models for crypto, they are still early and evolving. They’re not shared among enough market participants to have material weight. That means the reason you value Bitcoin at a certain level and the reason I do are probably very different. In our eyes, that’s simply an argument for long-term investing and diversification. Long-term investing gets a little harder during a bull market though, doesn’t it? If you bought Bitcoin at the top of 2017 and held it, certainly you went through a long and painful drawdown. It wasn’t until the fall of 2020 that your investment was back in the green. But if you did hold on to everything, between then and now, the value has almost doubled. These markets go through cycles, and the potential for recovery is always there. The general historical trend demonstrates that. What do you tell people about the value of altcoins, or anything that isn’t Bitcoin or Ether? There are a portion of crypto market participants that like to argue that Bitcoin is the only asset that matters and the rest are worthless. I think Bitcoin absolutely has systemic advantages as a function of being the first, the largest, the most well-known token. But to some extent, by that logic, as the first big search engine, Yahoo! would be the only one that matters. We’re so early in the life span of crypto that picking a singular winner based on its existing network feels like a weak argument to me. Of course there are different risks associated with Bitcoin, Ethereum, and the thousands of tokens, but the truth is we simply don’t know what will be the winners a decade from now. Does that mean you recommend investing in those other coins too? If you believe this asset class will continue to exist (and you have to believe that, if you’re willing to put your money into it), for the long-term horizon, I believe you have to diversify. If you do that well, you may be able to reduce your overall portfolio risk. How do you recommend people learn about all of the other coins? It seems like a daunting task.  It is, and while we do advocate for people learning about crypto, we don’t think you need to become an expert to invest. There are currently 17,000 tokens in existence. You can’t learn about all of them—and many aren’t worth learning about—but what you can do is check out our guide to the 54 (and growing) tokens we currently invest in. For each one, we give you a brief background and tell you why we think they matter. It’s our way of simplifying the learning process and helping you decide what to invest in. We also publish blogs covering crypto investing topics that only take a few minutes to read. How do you respond to people who are negative about crypto, or those who call it a bubble? It’s a speculative and emerging asset class that’s only existed for a decade, but that doesn't necessarily make it a bubble. That can create opportunity with commensurate risk. In some regard, all assets are speculative in nature. You wouldn’t buy stocks if you didn’t think they were going to appreciate, would you? The market goes through cycles. It has boom and bust cycles that repeat just like they do in any other market. But also, look at the debate that took place over the Senate Infrastructure Bill. If this is only a bubble, the Senate wouldn’t have argued so much about it, holding up more than $3 trillion in spending. Crypto is no longer “fake” internet money. This is a real thing with tangible markets, and it’s not going away. It’ll still be volatile, of course, but it’s not going away. Is crypto for everyone? I don’t think so. Like I said, it’s a volatile asset class, and if you expect it to consistently go up month after month and quarter after quarter, that’s just not what this is. It’s not a get rich quick opportunity either (although it certainly has been lucrative for some investors). Investing in crypto is investing in emerging technology. It has market cycles that you need to be aware of. You participate knowing that’s part of the experience. Some people aren’t into that, and that’s okay. Do you need a strong stomach for crypto? If you go into this with a diversified portfolio and the knowledge that a small percent of your net worth can experience outsize gains—and you also are in a position that losing your investment isn’t catastrophic—crypto shouldn’t feel nauseating. If it does, you maybe shouldn’t be in it, and that’s ok. How long did it take you to understand the market? It’s hugely complicated. It took me three months of full-time work before I had a general baseline understanding of everything. Even now, I’m in this all day and I still don’t understand everything that’s happening. That’s why it’s an intellectually engaging industry to work in.

What’s The Best Crypto to Buy Now? (Hint: There’s Not One) Here are three reasons why you shouldn't try to find the “best” cryptocurrency to buy now. (And what you can do instead.) If you decide to go on a Google search hunt for the best cryptocurrency to buy this year, you may find yourself down a rabbit hole in an unfamiliar and uncomfortable part of the internet. (Don’t worry, we’ve all been there at some point.) And if you don’t end up there, you may find yourself on one of the many generic investing websites, all offering you similar “top cryptocurrencies to buy in 2022” lists. You’ll find the usual suspects here, mostly based on market capitalization or even personal preference of the writer. It’s common for these lists to include Bitcoin, Ether, Solana, Cardano, Binance Coin, Polkadot, and Avalanche. All fair examples but no need to do a Google search at this point.  Instead of attempting to discover the next best cryptocurrency or token, we favor a different mental model. Ask yourself this question: What’s the best area of crypto to invest in, not now, but over the next three years? (Or whatever time horizon you are investing within.) You’ll see that trying to find the needle in the haystack—and it’s an incredibly large haystack—is probably not the best route to take. Rather, we recommend a more long-term, wide-reaching approach to selecting your investments. Three Reasons Not to Find the "Best" Crypto To sum it up, here are three reasons why you shouldn't try to find the “best” cryptocurrency to buy now. (And what you can do instead.) 1. You’re probably not a professional crypto investor. (And that’s perfectly OK.) If you are like nearly everyone, you’re not a professional crypto investor. Absolutely fine. Similar to any other asset class, non-professional crypto investors are at a disadvantage when it comes to technical resources, market data, and general industry knowledge. For example, at Makara, we have people whose job it is to research individual crypto assets and analyze the pros and cons of including them on our platform.  So instead of pretending to be a crypto day trader in search of a new token that’ll take you to the moon, we recommend staying on planet earth. One way to do this is to learn about broad sectors in crypto and decide for yourself which areas you think may have the most growth potential. Among other things, we’re talking about the metaverse, decentralized finance, and Web 3.0. You could take it a step further and read up on NFTs but you may just be tempted to right-click-save on a picture of an ape that for some strange reason you can’t stop staring at—avoid the temptation, for now. Read up on crypto sectors, and if you’re feeling up to it, try explaining them to your friends or family to see if you grasp the important notes. This approach will give you a wider understanding of the crypto industry and pairs well with our next two recommendations.  2. You don’t have enough time. (Join the club!) Making wise investment decisions takes time. One of the best investors to ever live, Warren Buffet, reads 80% of his day. We’re going to guess you can’t spend 80% of your day reading about crypto. So how do you make up for this? As we said, educate yourself about crypto industry sectors instead of searching for individual assets. But don’t stop once you can explain what the metaverse is and why it could change the future. Yes, you are short on time, but if you have done the work to understand sectors in crypto and are interested in investing, you have two very important questions to ask yourself: How much do I want to allocate into crypto? And what is my time horizon? These are very personal questions. And with the little time you do have, ones worth thinking about. Knowing the amount you are comfortable investing and when you need to withdraw the funds will help you better understand the risks and make a decision that lets you sleep at night. We like sleep. 3. You’re increasing your risk. (Not a good thing.) Investing in one cryptocurrency is not quite comparable to putting all of your eggs in one basket. It’s more like having one egg. One cryptocurrency, like one egg, can be fragile, or in financial language, volatile and prone to losses. It lacks any diversification within the crypto asset class. Diversification is a complex subject, but generally speaking, the goal of diversification is to invest in uncorrelated assets to reduce the risk of losses in a portfolio while enhancing its expected return. Moral of the story: we recommend diversification. Consider how your crypto investments fit into your larger diversified portfolio of uncorrelated assets. Within crypto, you can consider spreading your investments across multiple assets and even multiple sectors within crypto. One way of thinking about it is since predicting the future is near impossible, diversification sets you up for various outcomes. We built crypto baskets at Makara to give you the choice to invest across the crypto asset class in the metaverse, Web 3.0, or decentralized finance. We even have a basket encompassing all assets on the platform called the Universe Basket.  Your To-Do List for Finding the Best Crypto Assets Step 1: Read up on broad crypto sectors. Step 2: Know how much you want to invest and for how long.  Step 3: Select diversified investments. Rinse and repeat.

Save Taxes When Withdrawing in Retirement A smart withdrawal strategy during retirement can help make your portfolio last longer, while also easing potential tax burdens. When you retire, you can no longer count on a paycheck to fund your lifestyle. Though you may have some sources of fixed income, such as from Social Security or defined benefit pension plans, the income from these sources may not be enough to cover all of your regular expenses. That can leave you relying on the money from your investment portfolio to maintain your expenses and lifestyle. As a smart investor, you probably already have an idea of how much money you can safely spend during each year of retirement. But still, one important question remains: In which order should you withdraw from your accounts? While the true answer to this question depends largely on your individual circumstances, your actions can have a huge impact on both your tax bill and the longevity of your portfolio. Taxes will likely be one of your largest expenses in retirement (on par with healthcare), so a smart withdrawal strategy is crucial to your retirement success. Luckily, you often have more control over your taxes in retirement than at any other point in your life. While there are common strategies to follow, there are other more advanced strategies that could lead to substantial tax savings. At Betterment, we’ve established some guidelines to not only help build a smart retirement income plan, but to also try to save on taxes by establishing an order in which you should withdraw from your various investment accounts in retirement. But first, let’s examine how your money is taxed when withdrawn in retirement. How Withdrawals Are Taxed Before creating your retirement income strategy, you must first understand how withdrawals from your various accounts are taxed. We’ll explain the typical tax consequences by taxable, tax-deferred, and tax-free accounts. Taxable Accounts (individual, joint, and trusts): Investment income, such as dividends or interest income, is generally taxed in the year it is received. Any withdrawals are subject to capital gains tax, but only on the growth of the investment—not the principle. Tax-Deferred Accounts (Individual Retirement Accounts (IRAs), 401(k)s, 403(b)s, and Thrift Savings Plans): Unlike taxable accounts, no taxes are due on investment income or growth—until you make a withdrawal. When you do take money out, that full amount is subject to ordinary income tax. You are essentially delaying the payment of taxes. Tax-Free Accounts (Roth IRAs or Roth 401(k) plans): All investment income, growth, and withdrawals are tax-free, if meeting the requirements for a qualified distribution. Taxes on Withdrawals Vary By Account Type As you can see, pulling money from each of these account types (taxable, tax-deferred, and tax-free) can have very different tax consequences.   A Withdrawal Strategy for Tax Efficiency The ideal order for withdrawing money from your various accounts during retirement is as follows: First, pull money from your taxable accounts. Once those accounts are depleted, begin withdrawing money from tax-deferred accounts. Lastly, take money out of tax-free accounts. The reason that this strategy is generally most tax-efficient is the power of tax deferral and the compound growth that it provides. The longer you can shelter your tax-deferred and tax-free accounts, the better. That means more money stays in your accounts and can grow over time. Let’s look at how this order of operations works in more detail. Example: Why You Should Withdraw From Taxable Accounts First If you decide to withdraw money from your Traditional 401(k), every dollar will be taxed as ordinary income, which is the highest tax rate to which you could be subjected. In this hypothetical example, let’s say you need $1,000 and you are in the 24% marginal tax bracket. To end up with a net of $1,000, you would actually have to withdraw $1,316, because of the additional tax liability: $1,316 (amount withdrawn) x 24% (marginal tax bracket) = $316 (taxes owed) However, if instead you first pull money out from your taxable individual account, two things happen. First, as long as the money has been invested for over one year, the tax rate on your sold assets is lower. Long-term capital gains taxes are generally 15%.1 Second, you don’t pay taxes on the full withdrawal, only on the growth. If you bought the investment for $600, you only have to withdraw $1,071 to end up with a net of $1,000: $1,071 (amount withdrawn) – $600 (your basis) = $471 (capital gain) x 15% = $71 (taxes owed) A $1,316 withdrawal versus a $1,071 withdrawal results in a difference of $245 that gets to stay invested and potentially grow for a longer period of time. The benefit of tax deferral is clear. With Roth accounts, it gets even better. Money inside a Roth will never be taxed again if you meet the qualified distribution rules, so you keep 100% of all growth or income you earn. This is why tax-free accounts should generally be the last accounts you touch. Incorporating Minimum Distributions Generally, once you reach age 72, you must begin taking Required Minimum Distributions (RMDs) from your tax-deferred (non-Roth IRA) accounts. Not doing so will result in a 50% penalty on the amount you were supposed to take. This changes things—but only slightly. At this point, you’d want to follow these new steps: First, withdraw your RMDs. If you still need more, then you can pull from taxable accounts. Once depleted, start withdrawing from your tax-deferred accounts. Lastly, pull money from tax-free accounts. Supercharge Your Withdrawal Strategy You’ve seen the power of tax deferral, but if you’re a Betterment customer, there are other ways in which we help make your retirement income plan even more effective. Specific Lot Selection: When you make a withdrawal, we automatically sell investments that are at a loss first, which helps minimize your current tax hit. Account Specific Asset Allocation: We put tax-efficient asset classes (such as municipal bonds) in your taxable accounts, rather than in your tax-sheltered accounts. Both of these strategies seek to further optimize your tax withdrawal strategies. We execute on these tactics for you so that you can keep more money inside your accounts where it is able to grow. The Problem of Roller Coaster Income Unfortunately, putting a plan into action is always more complicated than in theory. In retirement, you will likely have multiple sources of non-investment income coming from Social Security, defined benefit pensions, rental income, part-time work, and/or RMDs. However, these fixed income streams do not all begin or end at the same time, and some can vary from year to year, just as a roller coaster goes up and down. This can cause your tax bracket and your spending needs to fluctuate throughout retirement, adding a layer of complexity to your retirement income plan. At first glance, these fluctuations seem to make creating a retirement income plan more difficult. Does the recommended strategy stated above, then, still apply? In most cases, yes. And with a little extra planning, you may actually be able to use these swings to your advantage. Smooth Out Bumps in Your Tax Bracket For most years, Betterment recommends pulling from taxable accounts first, then tax-deferred accounts, and tax-free accounts last. However, you should look for abnormal years of high and low income fluctuations and their associated tax brackets, then plan accordingly. By temporarily altering the above strategy, you can “smooth” out your tax bracket throughout retirement and reduce taxes. Lower Income, Lower Tax Bracket Some years you may find yourself in a lower bracket than usual. During these years, it may make sense to fill these low brackets with withdrawals from tax-deferred accounts before touching your taxable accounts, and possibly consider Roth conversions. Common examples of low-bracket years may occur when: You retire before you plan on claiming Social Security benefits. You have large balances in your IRA/traditional 401(k) that will cause future RMDs to bump you into higher brackets. Higher Income, Higher Tax Bracket On the other hand, you may have years where you are in an abnormally high tax bracket. In this case, it may make sense to pull from tax-free accounts first to minimize the effect of higher tax rates. Remember, higher taxes mean larger withdrawals and less money staying invested. Common examples of high-bracket years occur when: You sell a home or rental property and end up with large capital gains. You are working part-time in retirement and have a good year financially. You lose a large deduction, for example, perhaps you pay off your mortgage. Federal Income Tax Brackets (2022) Tax Rate Single Married 10% $0 – $10,275 $0 – $20,550 12% $10,276 - $41,775 $20,551 - $83,550 22% $41,776 - $89,075 $83,551 - $178,150 24% $89,076 - $170,050 $178,151 - $340,100 32% $170,051 - $215,950 $340,101 - $431,900 35% $215,951 - $539,900 $431,901 - $647,850 37% $539,901 + $647,851 + Source: Internal Revenue Service Tax Diversification The ability to pull from different accounts and smooth out your tax bracket requires having money invested in at least two, but ideally three tax pools, which are taxable, tax-deferred, and tax-free. We call this tax diversification, and it gives you the flexibility you need in retirement. Many customers have the majority of their savings in Traditional 401(k)s and IRAs, and little to no money in Roth accounts. That means you have no choice as to the order in which you withdraw from your investments, and you will pay taxes accordingly. Most retirees should seek to have some money in all three tax pools. The benefits of investment diversification are well known and often talked about, but tax diversification is not something that is often discussed. Generally, the only way to get money into each tax pool is by making direct contributions. However, a Roth conversion can be a powerful strategy to move money between tax pools. Building a tax-efficient retirement income plan is one of the main reasons tax diversification is so important. Extend The Life Of Your Portfolio Having a retirement income plan that incorporates taxes can extend the life of your portfolio. In general, we recommend you withdraw from your taxable accounts first, then your tax-deferred accounts, and lastly from your tax-free accounts. Implementing strategies such as Tax Loss Harvesting+, specific lot selection, and account specific asset allocation can further reduce or delay taxes. You should also smooth out any bumps in your tax bracket during retirement by accelerating tax-deferred withdrawals during low tax years and choosing tax-free withdrawals during high tax years. To do this, you must have money in all three “tax pools” (taxable, tax-deferred and tax-free). We call this tax diversification. Please note that Betterment is not a tax advisor. While we suggest everyone consult a tax professional to discuss their particular situation, those with more complicated situations such as complex estate planning or charitable giving may also want to consult an estate planning attorney. Even in such cases, we hope that these guidelines will still provide a solid foundation for your retirement income strategy. This article is intended to be educational in nature, and not meant to be relied upon as tax or investment advice. 1 As of the date published, long-term capital gains are generally taxed at 15%. However, if your taxable income is greater than $459,750 ($517,200 married filing jointly), you will pay 20% on long-term capital gains. An additional 3.8% Medicare Surtax also applies to those whose MAGI is above $200,000 single/$250,000 married filing jointly. Still, the tax rate on these long-term capital gains will be lower than your tax rate on ordinary income, so the reasoning still applies. Conversely, taxpayers with taxable income below $41,675 ($83,350 married filing jointly) pay 0% tax on long-term capital gains, making this strategy even more appealing.

What’s An Investment Portfolio? And why it's best to choose one suited to your goals and appetite for risk. In 10 seconds An investment portfolio is a collection of financial assets like stocks, bonds, and funds built around your goals and the level of risk you’re comfortable with. In 1 minute The investment portfolio that’s right for you depends on your goals and the level of risk you’re comfortable with. What do you want to accomplish? How fast do you want to reach your goals? What timeline are you working with? Your answers guide which kinds of assets might be best for your portfolio—and where you’ll want to put them. When choosing or constructing an investment portfolio, you’ll need to consider: Asset allocation: Choose the types of assets you want in your portfolio. The right asset allocation balances risk and reward according to your goals. Got big long-term plans? You may want more stocks in your portfolio. Just investing for a few years? Maybe play it safe, and lean more on bonds. In 5 minutes In this guide, we’ll: Explain what an investment portfolio is Explore the types of assets you can put in your portfolio Discuss how risk and diversification influence your portfolio Explain how to choose the right investment portfolio What’s an investment portfolio? When it comes to your financial goals, you don’t want your success or failure to depend on a single asset. An investment portfolio is a collection of financial assets designed to reach your goals. The portfolio that can help you reach your goals depends on how much risk you’re willing to take on and how soon you hope to reach them. Whether you’re planning for retirement, building generational wealth, saving for a child’s education, or something else, the types of assets your portfolio includes will affect how much it can gain or lose—and how long it takes to achieve your goal. What assets can your portfolio include? Investment portfolios can include many kinds of financial assets. Each comes with its own strengths and weaknesses. How much of each asset you include is called asset allocation. Cash can be used right away and carries very little risk when compared to other asset classes. But unlike most other assets, cash won’t appreciate more than inflation. Stocks represent shares of a company, and they tend to be more volatile. Their value fluctuates significantly with the market. More stocks means more potential gains, and more potential losses. Bonds are like owning shares of a loan whether made directly to companies or governments. They tend to be more stable than stocks. There’s less potential for gain over time, but less risk, too. Commodities like oil, gold, and wheat are risky investments, but they’re also one of the few asset classes that typically benefit from inflation. Unfortunately, inflation is pretty unpredictable, and commodities can often underperform compared to other asset classes. Mutual funds are like bundles of assets. It’s a portfolio-in-a-box. Stocks. Bonds. Commodities. Real estate. Alternative assets. The works. For a fee, investors like you can buy into a professionally managed portfolio. Exchange traded funds (ETFs) are similar to mutual funds in composition–they’re both professionally-curated groupings of individual stocks or bonds–but ETFs have some key differences. They can be bought and sold throughout the day, just like stocks—which often makes them better for tax-loss harvesting. They also typically have lower fees as well. ETFs are an increasingly popular portfolio option. Why diversification is key to a strong portfolio. Higher levels of diversification in your investment portfolio allow you to reduce your exposure to risk that hopefully will result in achieving your desired level of return. Think of your assets like legs holding up a chair. If your whole portfolio is built around a single asset, it’s pretty unstable. Regular market fluctuations could easily bring its value crashing to the floor. Diversification adds legs to the chair, building your portfolio around a set of imperfectly correlated assets. With a diverse portfolio, your gains and losses are less sensitive to the performance of any one asset class and your overall portfolio becomes less volatile. Price volatility is unavoidable, but with the right set of investments, you can lower the overall risk of your portfolio. This is why asset allocation and diversification go hand-in-hand. As you consider your goals and the level of risk you're comfortable with, that should guide the assets you choose and the ratio of assets in your portfolio. How to align your portfolio with your goal. Since some asset classes like stocks and commodities have greater potential for significant gains or losses, it’s important to understand when you might want your portfolio to take on more or less risk. Bottom line: the more time you have to accomplish your goal, the less you should worry about risk. For goals with a longer time horizon, holding a larger portion of your portfolio in asset classes more likely to experience loss of value, like stocks, can also mean greater potential gains, and more time to compensate for any losses. For shorter-term goals, a lower allocation to volatile assets like stocks and commodities will help you avoid large drops in your balance right before you plan to use what you’ve saved. Over time, your risk tolerance will likely change. As you get closer to reaching retirement age, for example, you’ll want to lower your risk and lean more heavily on asset classes that deliver less volatile returns—like bonds.

How To Make A Mega Backdoor Roth 401(k) Contribution Looking to boost your retirement savings? Contributing above the limit through after-tax contributions into a traditional 401(k) can help you maximize your savings with potentially great tax benefits. For most people that participate in a 401(k) plan through their employer, $19,500 is the maximum contribution (pre-tax and Roth) you can make to your 401(k) in 2021 (those age 50 and older get an additional $6,500 catch-up contribution). This “standard” contribution is considered to be an employee elective deferral. But what if your 401(k) plan could allow you to contribute more than this amount? And how much more? Potentially up to $38,500 more in 2021. After-tax traditional 401(k) contributions are less commonly offered by employers, but for heavy savers or high-income earners who do have this option, after-tax traditional contributions are a great way to try and maximize your overall retirement contributions. “Super-size Me”: 401(k) 2020 Contribution Limits 401(k) plans are a type of defined contribution plan where you, as the employee, make your own contributions to your retirement. In 2021, the total annual contribution limit to defined contribution plans is $58,000 (or $64,500, if age 50 and older). This $58,000 limit consists of your $19,500 contribution (combination of pre-tax and Roth), as well as any matching contributions your employer makes, employer profit-sharing, and after-tax traditional 401(k) contributions made. Any employer match would potentially reduce the amount of after-tax contributions you could make into a traditional 401(k). But if your employer does not provide any matching contributions nor profit-sharing, you could contribute up to an extra $38,500 on an after-tax basis to your 401(k). Tax alert – Even if your employer offers after-tax traditional 401(k) contributions, you may not be able to fully maximize the contribution due to plan limits and nondiscrimination testing for highly compensated employees. How Do After-Tax Contributions Work? Now that we’ve covered different types of contributions that could be made to your 401(k), how do they all work? The $19,500 salary contribution can generally be made as either pre-tax (traditional), or post-tax (Roth): When you make pre-tax contributions, the amount contributed to your retirement plan reduces your taxable income for that year, so that you get a tax break in the year contributing. When you withdraw in the future, you will pay ordinary income taxes on the full amount of the withdrawal, basis and earnings included. With post-tax Roth contributions, the amount contributed does not reduce your taxable income for that year, as you pay tax on the money before it is contributed. As long as you meet general requirements, withdrawals will be free of tax, earnings included. After-tax contributions into a traditional 401(k) are not tax deductible and grow tax-deferred, meaning that earnings will be taxed as ordinary income upon withdrawal. This is unlike general Roth 401(k) contributions, where earnings and withdrawals are tax-free. You might be wondering what happens to after-tax traditional 401(k) contributions after you retire or leave your company. IRS Notice 2014-54 states that earnings from these contributions while they are in the 401(k) would be rolled into a traditional IRA, where you will pay tax upon withdrawal. However, the original after-tax traditional contributions in your 401(k) are able to be rolled into a Roth IRA without paying taxes (since you already paid tax on the dollars contributed), where future growth and withdrawals are tax-free. Benefit To After-Tax Contributions For those who have the option and are able to make these contributions, it enables extra savings to be made into an account that grows tax-deferred rather than being saved to a taxable account, where you will owe annual taxes on dividends. After-tax traditional contributions allow you to indirectly contribute money to Roth-style accounts when you may not have been able to otherwise. For example, your income may be too high to make direct Roth IRA contributions or you may choose not to make Roth 401(k) contributions with your elective deferral because you’d prefer to make pre-tax contributions to reduce your taxable income. If that’s the case, the only other way you’d be able to get money into a Roth IRA for tax-free growth is to execute a Roth conversion, which may require you to pay income tax upon converting. The In-Plan Roth rollover Here is a strategy for how you can further amplify the benefits of after-tax traditional 401(k) contributions. If your employer allows you to make In-Plan Roth rollovers (not all plans offer the feature) – where you can effectively convert your traditional 401(k) to a Roth 401(k) – you can start the tax-free growth on your after-tax contributions even earlier. Any earnings on the after-tax traditional contributions would be considered taxable at the time of the In-Plan Roth rollover. The sooner this process is completed after the contribution is made, it would minimize taxable earnings. In other words, you don’t have to wait until you retire to get your after-tax contributions into a Roth 401(k). Steps To Take For Your Retirement Planning To see if your 401(k) plan offers after-tax traditional contributions, we recommend contacting your plan administrator. Note that Betterment for Business 401(k) plans currently do not offer the ability for you to make after-tax contributions to your Traditional 401(k), nor the ability to convert Traditional funds to Roth funds while the plan is active. Depending on each individual plan, these options could increase non-discrimination testing complexity and lead to unexpected refunds. Over time, we’ll continue to evaluate the value of these additional capabilities to our customers who hold Betterment 401(k) plans through their employer. For those that do have this option, you will want to consider all of the retirement accounts you have at your disposal, the tax benefits each offer, and your overall savings plan and cash-flow needs. If interested, you can speak with a financial planner to help you make the best decision for your retirement plan. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional. This article is provided solely for educational purposes. It does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures. If you currently participate in a 401(k) plan administered or advised by Betterment (or its affiliate), please understand that this article is part of a general educational offering and that neither Betterment nor any of its affiliates are acting as a fiduciary, or providing investment advice or recommendations, with respect to your decision to roll over assets in your 401(k) account or any other retirement account.

Where in the World Are You Invested? Betterment's portfolio diversification includes holdings across 102 countries. Consider where your money is invested. One of the fundamentals of good investing is good diversification. But it's hard to do well. Here at Betterment we have done that work for you—every customer can easily invest in a globally diversified portfolio of up to 12 ETFs. We picked those 12 ETFs based on careful consideration. For the bond basket, we needed to balance domestic and international interest rate risk and credit risk; and for our stock basket, we needed an appropriate mix of sectors, countries, and capitalization factors. The result is that our customers can access a portfolio that is invested in 102 countries and in more than 5,000 publicly traded companies across the world—along with exposure to government debt, corporate bonds, securitized debt, and supranational bonds with a range of creditors and interest rate sensitivities.1 Why go global? As we mentioned above, it's hard to diversify well. One problem for do-it-yourself investors is that they tend to home-bias their portfolios. They prefer to invest in companies they are comfortable with—because they know them, or they are close to home. Unfortunately, that means they are less diversified than they should be, and expected performance may suffer. Betterment’s portfolio avoids this home bias by reflecting global stock market weights. U.S. stock markets make up about 48% of the world's investable stock market–the remainder is international developed (43%) and emerging markets (9%). You can see this on the fact sheet for the MSCI All-Country World Index. By using the world's markets as its baseline, the Betterment portfolio diversifies risk on a number of levels including currency, interest rates, credit risk, monetary policy, and economic growth country by country. Even as economic circumstances may drag down one nation, global diversification decreases the risk that one geographic area alone will drag down your portfolio. To diversify risk When we selected our bond basket components, we considered which factors affect bond returns—interest rates risk and credit risk. Then we selected funds that would diversify those risks. For example, with high-quality domestic U.S. bonds, the risk comes from a potential rise in interest rates, which will cause a fall in value for longer-dated bonds. To diversify away from this specific U.S. interest rate risk,  we picked another bond asset with low correlation—in this case, high-quality international bonds. The particular fund we used, BNDX, hedges out all currency risk; and includes bonds from stable international governments and international issuers, each of which have their own interest rate risk and credit risk. We also invested a smaller proportion in dollar-denominated emerging market bonds. These tend to have much higher coupons (4.9% at time of publication), but also more volatility in price, as they have a higher exposure to credit risk from international issuers. To capture growth Among our various stock basket components, we include international stocks in order to benefit from growth overseas in developed markets, including the U.K., Japan, Germany, France, Australia, and Switzerland. This helps our portfolio maintain similar expected returns as more concentrated domestic portfolios, but with lower risk. Then with the emerging markets stock component (VWO), we can capture growth in small but expanding markets such as Brazil, India, and China. This further diversifies our portfolio, and should boost expected returns, particularly at higher risk allocations. 1 The portfolio invests in 102 countries at all but 100% bonds and 100% stocks.

Should You Create a Trust Fund? It Could Help You Preserve Wealth Weigh the costs and benefits of establishing a trust as part of your estate planning. For those who have assets to leave as a legacy, a trust can be a strategic part of estate planning. Trust assets can include everything from a life insurance settlement and real estate to investments and cash. However, not all trusts are the same—there are many variations, each with specific benefits and restraints. In the past, establishing a trust was largely viewed as a tool for very high net worth individuals looking to preserve wealth across generations. But these days, easily accessible low-cost investing accounts help us all take advantage of the value that creating a trust can provide for our assets. One of the benefits of trusts is that they can shield assets from lawsuits and probate costs. Many are interested in these benefits regardless of their net worth. With the emergence of automated investing services, like Betterment, setting up and managing a trust account of any size is easier than ever. Selecting the right type of trust for your needs will be something to discuss with an estate planning specialist, such as a financial advisor, accountant, or estate planning attorney.1 However, there are some general benefits that most trusts offer. Below is a summary to help you decide whether a trust may be right for you. Privacy and Protection After an individual’s death, an estate typically goes through probate, where the will is open for public scrutiny and assets may be used to pay off creditors. If assets are held in multiple states (real estate, for example), probate will take place in every state—adding substantial costs to settling an estate. The costs associated with probate could reduce the estate by 3% to 7% on average—and that’s not including additional estate taxes and income taxes that may be due. These additional costs mean significantly less assets are given to the intended beneficiaries. With certain types of trusts, all assets that have been placed in the trust are considered property of that trust, and thus they are off limits to creditors, they’re kept out of public record, and they can avoid probate. Trusts are also a useful way to shield and protect assets for people who are at higher risk of litigation, such as doctors. Placing assets in a trust may also reduce the potential for lawsuits between heirs. Taxes Different types of trusts provide different tax advantages. For example, an irrevocable life insurance trust shelters any life insurance death benefit proceeds from estate taxes. The most popular type of trust is a revocable living trust, which is a trust that can be modified once it is established. It’s created during the grantor’s (the person who funds the trust) lifetime. On its own, a revocable living trust doesn’t provide specific tax benefits, but additional provisions can be added to these trusts to help reduce estate taxes. There are about nine commonly used trust types. Speaking with an estate planner and tax advisor will help you determine how to maximize tax advantages and establish the right type of trust for your needs. Distribution Control Not all beneficiaries need the same thing. A trust can establish guidelines for how and when funds are distributed. Rather than simply naming the person who will inherit your assets, you can add provisions that specify how the trust assets can be used. By adding these provisions to your trust, you can help your assets last longer, since you decrease the risk of a beneficiary draining the account for frivolous expenses. For example, funds might be earmarked for education, for special medical needs, or for distribution only after the beneficiary has reached a certain age. In addition, a trust can ensure—through its guidelines—that money is distributed in a specific way to a specific entity, rather than an individual. This might mean a charity, a religious institution, or your alma mater. Sound Investment Strategy A trustee is the person(s) named in a trust document who is responsible for making decisions regarding the trust. By law, a trustee has a fiduciary responsibility to oversee the funds entrusted to them. Regulation, such as the Uniform Prudent Investor Act, states that a trustee must act “prudently” when administering a trust, which means holding the investments in a sound interest-bearing account, as well as assessing the risk, return, and diversification of assets. Trustees can be an investment firm or an individual. Trustees should ensure trust assets are invested wisely to fulfil the specific aims of the trust.  Automated investment services like Betterment provide trustees with an easy, low-cost way to manage a trust. Consider the Benefits Whether you are looking for asset protection, privacy, tax minimization, control over how your beneficiaries use their inheritance, or a combination of each of these things—establishing and managing a trust has never been easier. After speaking with your estate planning specialist and determining which type of trust is best for you, check out our FAQ on what we offer for trust accounts here at Betterment. 1Note that Betterment is not a tax advisor and nothing in this blog post should be construed as specific advice—please consult a tax advisor regarding your specific circumstances.

Why Only “Buying Local” When Investing Is Risky Currently, U.S. investors may be asking themselves why they should be investing outside of their home country when their own stock market is doing so well. Just a few decades ago, U.S. investors were asking themselves the opposite question. The third quarter of 2019 brought some very positive news for me on a personal level—I received my green card and am now a permanent resident of the United States. If that’s not enough to make me feel patriotic about my newly adoptive country, I needn’t look further than the U.S. equity markets to feel proud. Over the past decade, the American stock market has been incredibly strong, and by some definitions we qualify for having the longest bull market in history. For example, from September 5th, 2011 until September 5th, 2019, the total return of Vanguard’s VTSAX fund, which tracks the total U.S. stock market, was 252%. Vanguard’s VFWIX fund, which tracks world equity markets outside of the U.S., only had a total return of 58% over the same period. Why invest in international stocks? A natural question after hearing this statistic might be: why does Betterment’s portfolio have such a large allocation towards international stocks? After all, our 100% stock portfolio currently has a target allocation of around 40% in international equities. The short answer is that the Betterment portfolio is designed to be representative of the makeup of global investable assets as a whole, and around 40% of the world’s equity assets are invested outside of the U.S. But an international portfolio can also reduce the risk of overweighting one particular country in your portfolio. Home bias can lead to more risks. Some investors choose to overweight their investments in their home country, which is a phenomenon known as home bias. Home bias can expose your portfolio to more risks as it gets less internationally diversified. An especially gut-wrenching example of these risks occurred during this last quarter for Argentinian investors. Latin American investors tend to have strong home bias, with the average Latin American investor tending to allocate 97.5% of their portfolio to Latin American markets—even though only 1.4% of the global capitalization is Latin American. An extremely high local stock market allocation may have been initially positive for Argentinian investors, because their markets grew over 40% in the first eight months of the year. However, on August 12, 2019, the MSCI All Argentina 25/50 Index fell over 24% in just one day. Currently, the index is now seeing overall negative returns for the entire year. Source: Data from Xignite This recent loss was a blow to Argentine equity investors, especially among those with a strong home bias. It’s worth noting that because Argentina and the U.S. are entirely different countries, we generally shouldn’t expect their markets to behave the same. While Argentina is a beautiful country known for its art, dance, food, mountains, and beaches—it’s also currently battling an extremely high inflation rate. The country is currently instituting currency controls to combat the devaluation of the Argentine peso. True diversification helps equip you for the long haul. It’s impossible to predict what will happen with the U.S. stock market going forward. But, we do know that historically, U.S. stocks have also seen long streaks of underperformance compared to international stocks. In the chart below, we plot the 2-year annualized returns of the MSCI EAFE index, which tracks the performance of international developed stocks, and the MSCI USA index, which tracks U.S. equities. Highlighted in gray is any period where international stocks outperformed U.S. stocks. Keep in mind that past performance is not indicative of future performance. Source: Data from MSCI Since the start of the indices, we see that U.S. stocks have outperformed international stocks about 57% of the time. However, until 1990, U.S. stocks only outperformed international stocks 32% of the time. At that time, U.S. investors may have been asking themselves the exact opposite question—why invest in American equities that are lagging international markets? True international diversification means that your portfolio won't likely have the highest returns—but it will also generally be better equipped to handle local crises and downturns. We now live in a globalized world, and your portfolio at Betterment is designed not only to help avoid the risk of local downturns, but to capitalize on global growth over the long term.

How I Managed My Financial Goals When I Got Married There are many different ways to manage money as a couple. The key is to have open communication, sooner rather than later. A few months before the wedding, one of my groomsmen asked me if I had thought about how my fiancée and I would combine finances. It sparked an interesting conversation, as he and I then realized we had very different views on the best way to manage money as a couple. Of course, every relationship is different and there is no silver bullet for reducing money-related stress within a partnership. However, we consider ourselves lucky to have found a system that works well for us early on. After all, a study found that financial problems were cited as a cause for the breakdown of relationships by at least one of the partners in 56% of divorced couples — a sobering statistic to be sure. In this article, I’ll share some of the personal finance practices that worked well for my wife and me: proactive budgeting, allocating every dollar in our budget to a goal, and speaking openly and often about our financial priorities. Here’s what worked for us: We quickly decided to join our finances. My wife and I met in college. After a few months of dating, we both knew we were in the relationship for the long haul and our approach to finances changed radically. Even before we moved in together, we made it a point to foster a philosophy of “what’s mine is yours.” One common way couples manage their finances is to set up a joint account from which all bills are paid, and each partner keeps a separate account for “mine” and “your” spending. In contrast, we approached budgeting in almost the exact opposite way— every expense was “ours,” and we also set our budgeting goals together. One month I might have needed a suit for a job interview and another month she might have needed some repairs done to her car. Either way, we considered both of these expenses as shared, and didn’t keep track of who paid for what. Of course, this approach might have complicated things if our relationship had not turned out as well as it had. If we had broken up a few months into our relationship, one of us may have felt cheated by the fact that more expenses were paid for by their account. However, I credit our approach to finances as part of the reason why our relationship was so solid in the first place. I don’t think my wife and I have ever had an argument about our finances, and by setting common goals and budgets early on, we were able to avoid one of the largest relationship stressors. 3 Tips For Managing Joint Finances Our strategy for managing finances has remained mostly the same since our college days. For budgeting, we use the envelope system, which relies on giving all of your cash a purpose. Every cent that flows into one of our accounts is earmarked for a specific need. One very tedious way of following this technique is to keep all your money in cash, and physically store it inside separately labelled envelopes (hence the name). If the grocery envelope has $100 on it, then that’s your budget for groceries until you have more cash inflow to distribute among your envelopes. Of course, you can simplify this system by having software track your cash digitally. 1. Develop a proactive vs. reactive budget. First, our budget is proactive rather than reactive. Many popular budgeting apps aggregate your transactions and let you see how much money was already spent on what, but they don’t actually help you plan out your future goals. We use the app YNAB, though a simple spreadsheet could get you most of the way there. Keeping track of your spending in such detail may sound taxing, but it has many benefits. By giving every dollar a job, we know what our spending will look like ahead of time, and we can focus on saving for the long-term. 2. Adopt the “envelope” system. Secondly, the envelope system helps you smooth out seasonal spending patterns over time. For example, we have a dedicated category for Christmas gifts to which we allocate a few dollars every month. Though buying holiday gifts may not seem top of mind in February, allocating to that category year round means that once December rolls around, we have a full “digital envelope” of cash solely dedicated to buying gifts. Though the physical spending may vary month-to-month, the amount we contribute to each category is very steady. I think of this as almost like a self-sponsored credit card, where we have low monthly payments every month, instead of a large payment all at once. 3. Speak openly and frequently about future priorities. Thirdly, taking a proactive approach to budgeting means that my wife and I regularly have conversations about our hopes and priorities for our finances. A budget that summarizes what you spent last month will do very little to make you think about your future goals, but our budget has categories for things like future vacations, a home-purchase, and school fees for children we don’t even have yet. Strange as it sounds, I think we’ve had some of the most enriching conversations of our relationship while doing our budgeting. There is no one-size-fits all solution for how to manage finances as a couple. Indeed, even initiating the conversation about managing money can be daunting. Yet, since communication is key, I remain a firm believer that early, open conversations about what works best for you and your partner are not only critical for the relationship but also an incredible opportunity to work towards your dreams, together. Whether you choose a proactive budget or a reactive budget, whether you begin merging your finances sooner or later (or at all), and whether you review and adjust your approach often or occasionally, take the fear out of talking money. More than anything, budgeting together is an opportunity to discuss what is most important to you—a chance to start on a path towards goals for which you are excited to reach together. Some might say those are the very best parts of a relationship.

5 Common Roth Conversion Mistakes Converting your Traditional IRA to a Roth IRA can be a useful strategy for many investors. However, mistakes along the way can cost you—we’ll help you avoid them. Taxes are treated differently between Traditional and Roth IRAs. Traditional funds are taxed at retirement, whereas Roth funds are taxed when you put them into your IRA. Transferring funds from a Traditional IRA to a Roth IRA is called a Roth conversion. With a conversion, you are essentially changing money that hasn’t been taxed yet into money that has been taxed—and paying the resulting taxes due from the conversion. There can be many reasons for why you may want to go ahead and pay taxes in the present rather than in the future. In this article, we’ll focus on several mistakes that can occur when performing a Roth conversion. These mistakes are common enough that anybody contemplating a Roth conversion should be aware of them. Since Betterment is not a tax advisor, please consult a tax advisor if you have questions on how a Roth Conversion would affect your specific tax situation. See step-by-step instructions for converting your Traditional IRA to a Roth IRA. 1. Convert Too Late Most of us don’t think about taxes until April, when we have to actually file. However, by waiting this long to convert from a Traditional IRA to a Roth IRA, you may be paying more taxes than you need to. Remember that you only pay taxes on the amount you convert. Let’s say you convert $10,000 in January and it grows to $11,000 by the time you file your taxes in April. You still only pay taxes on the $10,000. Had you waited until tax time, you would have had to pay taxes on $11,000 instead. As with many things, it pays to plan ahead. If you plan on doing a conversion, do it as early in the year as possible—preferably in January, in order to give your money the longest amount of time in the market as possible so that it can grow tax-free. 2. Convert Too Much Roth conversions can be a powerful strategy, but blindly converting can end up causing more harm than good. A common strategy used to avoid paying more in taxes than you may have to is called “bracket filling.” You determine how much room you have until you hit the next tax bracket, and then convert just enough to “fill up” your current bracket. For example, if you are married filing jointly and have taxable income of $100,000, then you have about $71,050 of room before jumping from the 22% Federal tax bracket to the 24% bracket. It’s worth noting that certain state tax rates can be impacted as well and the rules vary state to state. Converting any more than what you have left to fill up your current tax bracket would likely cause you unnecessary taxes. You can work with your tax preparer to find exactly how much room you have and how much to convert. 3. Convert Too Little On the other end of the spectrum, many people are too conservative when calculating how much to convert and end up missing out on valuable room in their tax brackets. To be clear, going into the next bracket is probably not what you want to do. However, nobody knows exactly what bonus they’ll get, or how many dividends they will receive, so guessing the exact dollar amount is impossible. Since we no longer have the luxury of undoing a Roth conversion, it’s more important than ever to take extra care when running the numbers. If most or all of the Traditional IRA is comprised of after-tax contributions, delaying or avoiding a conversion may only increase the taxable earnings later. See Smart ways to minimize taxes on a conversion. 4. Keep the Same Investments Conversions can be a great tool, but don’t stop there. Once you convert, you should also adjust your portfolio to take advantage of the different tax treatment of Traditional and Roth accounts. Each account type is taxed differently and many investments grow differently, too. You can take advantage of this by strategically coordinating which investments you hold in which accounts. This strategy is called asset location and can be quite complex. Luckily, we automated this strategy through our Tax Coordination feature. Pairing asset location with Roth conversions can help supercharge your retirement plan even further. 5. Pay Taxes From Your IRA Paying any taxes due from the conversion out of the IRA itself will make any Roth conversions you do less effective. If you convert $10,000 and are in the 22% tax bracket, you will owe $2,200 in taxes. One option is to pay the taxes out of the IRA itself. However, this will mean you paid taxes on $10,000 but only have $7,800 left to grow and compound over time. If you are under the age of 59 ½, the withheld amount will also be subject to a 10% early withdrawal penalty. Instead, consider paying taxes owed using excess cash or a non-retirement account you have. This will help keep the most money possible inside the Roth IRA to grow tax-free over time. Step-By-Step Instructions We recognize that many investors are interested in this technique, so we’ve created a quick process that allows an investor to authorize a Roth conversion online in less than a minute. Log in to your account on a web browser. Click on Settings in the menu on the left-hand side of the page. Click the Accounts tab at the top of the page. Find your Traditional IRA and click the 3 dots that appear off to the right. Choose the option that says “Convert IRA to Roth.” You’ll have the option to convert either a partial amount or the full amount. For questions regarding whether or not converting is the best option for you, please consult a tax advisor, as Betterment is not a tax advisor and cannot provide tax advice for your specific situation.